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Last updated: 15 Aug 2023

HMRC targets individuals with second properties

HMRC is continuing to target taxpayers who may have unreported income and capital gains arising from residential property. With tactics like the Let Property Campaign and ‘nudge’ letters in place, it’s important to consider whether your tax position is up-to-date.

Residential properties

Since 2020, HMRC has been sending a series of nudge letters to taxpayers who have disposed of residential properties, to ensure that they’re making the correct disclosures on their tax returns. These nudge letters have become more common over recent years due to the changes brought in from 6 April 2020, which requires taxpayers to file a Capital Gains Tax (CGT) property tax return within 60 days (30 days prior to 27 October 2021) of completion on the sale of a UK residential property. Any disposal must also be reported on the your Self Assessment tax return, in the tax year in which the sale was completed.

HMRC is particularly targeting people with second properties, as the letters state that while they identify the taxpayer as the owner, they have no record that they've lived in the property. Such properties, once sold, will not qualify for Private Residence Relief (PRR) and are likely to result in reporting position and potentially a tax liability.

Where a sale has not previously been reported, penalties could be as high as 100% of the unpaid tax. Making a voluntary disclosure of the disposal could potentially reduce your exposure to these penalties. There is likely to be higher penalties for overseas property disposals that have not been reported.

If you receive one of these nudge letters, it’s important to not ignore it because it might then result in a formal enquiry into your tax affairs, even if your tax affairs are correctly reported. The good news is that we’re still within the amendment window for the 2021/22 UK tax return (deadline 31 January 2024) and so there’s the opportunity to amend your return rather than entering a formal disclosure.

About the author

Neal Lees

+44 (0)20 3972 6627
leesn@buzzacott.co.uk
LinkedIn

Residential properties

Rental properties

The Let Property Campaign (LPC) is an HMRC disclosure initiative, designed to help landlords regularise any historic UK tax irregularities associated with their rental profits. As part of this campaign, HMRC is writing to landlords to enquire if a property is being let and whether they are receiving rental income, with the focus being on second home owners and lettings through Airbnb.

Our experience is that HMRC is more lenient with people who come forward under this campaign, often charging only the minimum financial penalty or possibly suspending it altogether, subject to future compliance. There’s less scope for negotiation regarding penalties if HMRC prompts you to declare rental profits that were not reported.

HMRC’s increasingly sophisticated tools

In the last decade, HMRC has implemented its digital initiative that has the ability to cross check what a taxpayer reports on their tax return with organisations such as the Land Registry and other government bodies. HMRC has ever more sophisticated tools at their disposal and in the face of this, it’s far easier to find inaccuracies on a taxpayer’s tax return, even though it may have been a simple omission.

What should you do?

If you receive a nudge letter from HMRC, do not ignore it. You should seek professional advice to review your tax position to ensure that all reporting is correct. You may then need to amend your 2021/22 tax return with the correct disclosures, before the 31 January 2024 deadline, or file a formal disclosure if you have received a nudge regarding a previous tax year.

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